In advance of a formal board response to David Baazov’sbid to buy Amaya, SpringOwl Asset Management has sent a letter to Amaya’s CEO and chairman denouncing the offer and rejecting any further relationship with Baazov.

The letter acquired by OPRlists a damning set of objections to both the bid and any continuing relationship with David Baazov.

SpringOwl’s CEO Jason Ader complains that the company has communicated poorly with shareholders, and expressed his concern about corporate governance decisions and strategic initiatives.

Ader avers that the company can deliver better shareholder value if it simply follows through on its strategic plan.

After listing the weaknesses of the company under David Baazov’s leadership, Ader pokes holes in his bid and then suggests several steps the company can take to improve governance and grow the business.

Amaya’s board has not yet formally replied to the letter, but the opposition of one of their major investors will make it more difficult for them to recommend that shareholders should accept Baazov’s bid.

SpringOwl has a track record of activist investing

SpringOwl was a major investor in bwin.party holding 5.25 percent of the stock. Disillusioned by the decline in bwin.party’s revenues and its falling share price, Jason Ader confronted the board and demanded that he be given four seats.

Bwin.party succumbed to the pressure, giving Ader one seat immediately and agreeing to consider his nominee for three further new board appointments.

When bwin.party was looking for buyers, it was Ader who brought 888 Holdings to the bidding contest with GVC. At the time Ader said:

“I believe not only are 888 the best buyer for this company but that its management team will realize significant long-term synergy value for our shareholders with the least amount of execution and regulatory risk.”

When Amaya held its AGM in June, reporters and non-shareholders were unusually excluded. Jason Ader was one of few attendees who were prepared to talk to the press after the meeting.

“It’s an interesting time for this company,” he said. “It’s at a crossroads. Great assets. Controversy. Lot of value.”

He still sees the value in Amaya, but not if David Baazov’s bid succeeds.

Criticism of Baazov

In the letter, Ader’s criticisms of Baazov include allegations that he wields undue influence—Baazov continues to own almost a fifth of the equity, making him a larger shareholder than SpringOwl.

The criticism may be unfair, as the legal dealings with Kentucky pre-dated the acquisition of PokerStarsby Amaya. Bwin.party settled its case in June 2013, while Amaya didn’t buy PokerStars until a year later.

The weaknesses of the Baazov bid

Amaya’s board will be particularly interested in Ader’s take on the weaknesses in the bid which Baazov has put on the table.

Ader believes that the bid undervalues Amaya, implying an EBITDA multiple of 11.9 compared with other gaming transactions which have gone through with an average EBITDA multiple of 17.

The investment Amaya has made in developing its casino and sportsbetting business will produce near term benefits that will show their true value, in Ader’s opinion, so he says that this is not the right time to consider a sale.

If there is to be a sale, Ader suggests that there are plenty of other potential investors who would be interested if they could enter the bidding on a level playing field.

Ader also pours scorn on the credibility of Baazov’s funding, and reiterates that his legal problems could well prevent any deal that may be agreed from closing.

An alternative way forward for Amaya

Despite the many criticisms, the letter adopts a positive tone towards the future of Amaya. Ader suggests specific steps the board can take to rectify the situation.

Clean split with Baazov—Ader suggests a clean separation from David Baazov, whose shares should be placed in trust. He demands, as he has done before, that the company stop paying Baazov’s legal costs and salary.

Enlarge the board with three new directors to represent shareholders.

Prioritize growth in casino and sportsbetting to convince investors that the company is on the right track.

Support poker to ensure that Amaya maintains its lead in the industry.

Strategic initiatives should be pro-active not reactive, and take into account the company’s strategic plans when considering timing.

Can Baazov recover from this opposition?

The letter should shortly provoke a response from the board, although this is likely to be along the lines of noting the letter has been received rather than commenting on its contents.

It may also delay the board’s decision on a formal response to the Baazov bid.

At the time of writing, Amaya’s share price is just over CA$19, still well short of the CA$24 price that Baazov has proposed. The large difference implies that investors remain unconvinced that the offer will go through.

If investors had confidence in the Baazov offer, they would race to buy at CA$5 below the bid price to make a fast 25 percent profit as the price converges with the bid.

On the plus side for Baazov, his Chinese investment partners have expressed their confidence in his bid.

After the SEC filing debacle came to light, Head and Shoulders Chairman Stanley Choitold Bloomberg that he continued to support David Baazov.

The crux of SpringOwl’s objections revolves around a belief that the company’s new business verticals will lead to growing revenues and thus an increased share price.

While SpringOwl wants nothing more to do with Baazov, other investors may step back and remember that the new verticals were largely introduced by Baazov, and central to his strategy for growing Amaya.

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Joss Wood -
A former editor of Poker Industry Pro, Joss Wood is a graduate in English from the University of Birmingham. Joss also holds a master’s degree in Organisational Development from the University of Manchester. His career path has taken him from the British Army, through business and finance to seven years as a successful professional poker player.